Southland District councillors are seeking community feedback on whether the council should join the Local Government Funding Agency (LGFA). 

Councillors discussed the move yesterday (January 28) at the first full council meeting of the year.

The LGFA is a scheme which enables local authorities to borrow at lower interest margins than potentially is otherwise unavailable, such as from banks. Created in 2011 by a group of New Zealand Local Authorities and the Crown, there are currently 71 participating councils, with $11.9 billion borrowed by the local authority sector.

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The government is not a guarantor of the LGFA but it is a 20% shareholder. 

Southland District Council (SDC) chief financial officer Anne Robson said the key reason to join was the opportunity for the SDC to get lower interest rates than would be available from other methods.  

Robson said it was estimated the council would save 1% in interest charges or $10,000 per $1 million of borrowing.

She said a council could participate in the LGFA in three ways, as a shareholding participating council, as a guaranteeing participating council or as a non-guaranteeing participating council.A non-guaranteeing participating council has the lowest risk however it’s limited to $20million of borrowing and pays a higher interest rate.

In her report, Robson recommends that the council join the scheme as a guaranteeing Local Authority. A Guaranteeing Local Authority guarantees the obligations of the LGFA but gets lower interest rates than a non-guaranteeing, and if it gets a credit rating can potentially get lower rates again.

“They are not guaranteeing individual councils,” said Robson. 

“The guarantee is limited to Council’s rates income as a percentage of the total rates income of all guaranteeing councils in any given year. For the Southland District Council this is estimated to be 0.73%. This would mean that if the LGFA made a call of $100 million then Council would contribute $730,000,” she said.

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LGFA representative Andrew Michl talked the councillors through the information of the funding agency yesterday morning. 

He said the LGFA expected that all councils – except for the Chatham Islands – would end up borrowing or joining in the LGFA in the future.

“We did get a lot of councils initially joining but there were a number of councils, such as yourselves, that haven’t had a lot of debt so for them it hasn’t been such a pressing priority to join.”

Of the 71 member councils, 59 are guarantors of LGFA.

Robson added that once in the LGFA, there was no obligation to borrow from it or restrict the council from borrowing from anywhere else, it would just offer the SDC some “flexibility,” in its borrowing moving forward. 

However, Councillor Don Byars was not convinced that the SDC needed the LGFA at all, saying that he was concerned it would mean unnecessarily taking on added risk.

“…we’re in a pretty strong, or very strong, position compared to other councils around the country and we’re moving into a space where we don’t have any real understanding of the risks involved and that we’re taking on risk for the sake of saving some peanuts along the way,” he said. 

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Mayor Tong then added that this could all be discussed during the consultation period, to which Cr Byars asked if it even needed to go out to consultation at all. 

Cr John Douglas was for the proposal saying he believed it represented an opportunity for the council with its “very strong balance sheet” to leverage that advantage and give benefits to the ratepayer. 

Cr Owen then said that given the topic was a very complex issue, some effective communication would be needed when consulting with the community to ensure people understood what was being asked and to drive maximum participation from the community.

“[I’m] concerned that not many people will engage, if they are… they might get a bit lost,” she said.

The consultation documents would need some “pretty detailed work,” she added.